Andrew Edwards, Staff Writer
Posted: 08/08/2012 12:52:54 PM PDT
The federal agency tasked with regulating the nation’s government-backed mortgage firms said it may oppose local agencies’ efforts to use eminent domain to take over underwater mortgages.
The controversial plan is being considered for use in San Bernardino County, where an estimated 150,000 homeowners owe more on their mortgages than their homes are worth.
Proponents say the plan could give struggling homeowners a better shot at refinancing their mortgages.
But the Federal Housing Finance Agency suggested otherwise on Wednesday.
“(The Federal Housing Finance Agency) has determined that action may be necessary on its part as conservator for the enterprises (Freddie Mac and Fannie Mae) and as regulator for the (federal home loan) banks to avoid a risk to safe and sound operations and to avoid taxpayer expense,” the agency declared in a Federal Register entry.
Federal officials’ entry into the eminent domain-for-mortgages debate comes before a San Bernardino County agency created specifically to address underwater homeowners’ problems officially considers the idea.
Even so, the concept is gaining attention from coast to coast as interests line up to oppose the idea or follow the the county’s lead and consider the concept on their own.
For example, Chicago officials are expected to hold hearings on the idea next week. On the other side, business groups including the Inland Valleys Association of Realtors and others representing the financial services industry oppose the plan.
The idea itself comes from Mortgage Resolution Partners, a San Francisco investment group. The concept rests on the idea of local governments using eminent-domain powers to buy private-label mortgage backed securities.
Mortgage Resolution Partners proposes to raise private money to bankroll those purchases. Its founders say homeowners whose outstanding mortgage debt exceeds the market value of their house will have a better shot at refinancing if local governments own the note.
San Bernardino County and the cities of Ontario and Fontana have formed a special agency to consider the investment firm’s idea, along with other proposals. The agency has power of eminent domain and is likely to send out a formal request for proposals when it meets Aug.16.
If Mortgage Resolution Partners’ proposal is adopted and works as designed, the firm would collect fees for its services. Its investors would own the revenue stream from homeowners mortgage payments.
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